What's in store for the ASX tech sector in 2021?

The tech sector managed to record substantial growth in 2020 despite the COVID-19 pandemic. What does 2021 have in store for the sector?

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The global tech sector had a bumper year in 2020 with the NASDAQ gaining 40% over the year as technology companies rode a wave of COVID-19 disruption.

Australia's All Technology Index (ASX: XTX), which launched in February 2020, finished the year up 42.5%. 2021 is also shaping up to be a promising year for technology shares with government stimulus potentially providing tailwinds to the sector.

The Biden administration is expected to splash cash to get the US economy restarted, with sectors such as biotechnology and artificial intelligence prime candidates for investment. Increased investment in digital infrastructure in the US will have impacts globally, as technology becomes increasingly important in driving our lifestyles and consumption patterns. 

The coronavirus pandemic disrupted traditional ways of working, living, and shopping which largely benefitted tech shares. In 2020 we spent more time than ever online, accelerating trends such as working from home and ecommerce which have been gaining momentum in recent years.

The pandemic increased the importance of the technology sector significantly, as people turned online to manage their work and home lives. Adoption of technology accelerated sharply as the result of lockdowns, boosting tech company returns.

Many of the habits formed in 2020 will carry forward into 2021, driving long-term revenue growth for companies in the tech sector. So which areas of the tech sector should we be watching in 2021?

Digital shopping accelerates

Online shopping, which had been steadily gaining in popularity prior to 2020, received a shot in the arm last year as physical stores shuttered in the face of the pandemic.

Online retailers such as Kogan.com Ltd (ASX: KGN) were the beneficiaries. The Kogan share price gained an impressive 155% over 2020 as sales accelerated.

Online furniture and homewares retailer Temple & Webster Group Ltd (ASX: TPW) saw its share price gain 300% as revenue growth climbed through the year.

Brick-and-mortar retailers with a strong online presence such as JB Hi-Fi Limited (ASX: JBH) and Adairs Ltd (ASX: ADH) also shared in the spoils. JB Hi Fi's online sales grew by nearly 50% in FY20. Online sales accounted for 39% of total Adairs sales in the first 23 weeks of FY21, versus 20% over the same period the previous year. 

Customers introduced to the convenience and comfort of online shopping during the pandemic are expected to continue to buy online even as physical stores reopen. This means COVID-19 will not only provide a one time boost to ecommerce, but a permanent behavioural shift towards online shopping.

Statista estimates global retail ecommerce sales will grow from US$3.53 trillion in 2019 to US$6.54 trillion in 2022. That's a massive increase and will provide strong tailwinds to ASX shares in the ecommerce game. 

Buy now, pay later goes mainstream 

There is no doubt 2020 was the year that buy now, pay later (BNPL) solutions went mainstream. Australia's largest BNPL provider, Afterpay Ltd (ASX: APT), saw customer numbers increase exponentially as the share price rocketed to all time highs.

The rise in digital shopping combined with an increased focus on budgeting in the face of the pandemic, helped drive customers to BNPL providers. Afterpay reported more than 11 million customers in Q1 FY21, nearly double the number just a year earlier.

Competitors such as Zip Co Ltd (ASX: Z1P) and Sezzle Inc (ASX: SZL) saw similar increases. Zip's customer numbers skyrocketed from 1.8 million at the end of 2019 to 5.3 million in November 2020. Sezzle more than tripled customer numbers between the first quarter of FY20 and the first quarter of FY21. 

BNPL shares are still in growth mode, with many raising capital in 2020 to fund expansion. Analysts are expecting BNPL shares to continue their accelerated growth trajectory in 2021, especially in the North American and European markets.

Demographic trends also support continued growth, with millennials shunning credit cards in favour of BNPL solutions. More merchants across industries are seeking to offer BNPL solutions to attract customers, while geographic expansion is also on the cards.

BNPL solutions are disrupting the traditional credit card industry and are expected to continue to gain market share in 2021. 

Remote working solutions come to the fore 

Much of the world's workforce was sent home to work in 2020, and many found they enjoyed the flexibility it provided. Forbes has reported that an estimated 70% of the workforce will be working remotely at least 5 days a month by 2025.

Tech sector companies such as Livetiles Ltd (ASX: LVT) that facilitate remote working are set to benefit. Livetiles is an intranet and digital workplace software company. It provides tools that allow dashboards, employee portals, and corporate intranets to be created with artificial intelligence and analytics enhancements available.

ELMO Software Ltd (ASX: ELO) is another ASX tech share that facilitates remote working with its cloud-based HR software. ELMO's platform allows organisations to manage the employee lifecycle through data analysis to provide meaningful insights. With an addressable market valued around $10 billion, ELMO is looking to capture additional market share in 2021.

ASX tech sector in 2021  

The technology sector has entered 2021 in a strong position. Many of the advantageous social shifts that took place in 2020 look set to continue into 2021 providing the sector with tailwinds.

Online shopping, remote working, and BNPL gained many fans last year and are expected to continue to gain popularity in 2021.

As we become ever more reliant on technology, the future looks bright for tech investors.

Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Elmo Software. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd, LIVETILES FPO, Temple & Webster Group Ltd, and ZIPCOLTD FPO. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends ADAIRS FPO and Sezzle Inc. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended ADAIRS FPO, Elmo Software, Kogan.com ltd, LIVETILES FPO, Sezzle Inc, and Temple & Webster Group Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

A man sees some good news on his phone and gives a little cheer.
Broker Notes

These ASX shares could rise 20% and ~40%

Analysts think buyers of these shares could generate big returns over the next 12 months.

Read more »

Two brokers analysing stocks.
Share Market News

Brokers name 3 ASX dividend shares to buy

Analysts think income investors should be snapping up these shares.

Read more »

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer
Share Market News

Here's when Westpac says the RBA will now cut interest rates

Have things changed since last week's RBA meeting? Let's find out.

Read more »

kid riding a plastic go kart with his hands raised in the air with mountains in the background symbolising winning a race
Opinions

Down 15% in 4 months, is it time to buy this ASX growth stock?

I think this ASX growth stock is a great performer.

Read more »

A man in a supermarket strikes an unlikely pose while pushing a trolley, lifting both legs sideways off the ground and looking mildly rattled with a wide-mouthed expression.
Consumer Staples & Discretionary Shares

The Woolworths share price is down 16%: Time to buy the stock?

I think now looks like a good time to put this supermarket stock in the shopping basket.

Read more »

a female bank teller smiles warmly as she hands over a piece of paper to a female customer while a large vase of tulips rests on the bank counter.
Bank Shares

Can the good times keep rolling for ASX 200 bank shares in FY25?

Bank stocks have screamed up the charts in 2024, with CBA setting a new all-time record on Friday.

Read more »

Exhausted young Caucasian woman lying on comfortable sofa in living room sleeping after hard-working day, tired millennial female fall asleep on couch at home, take nap or daydream, fatigue concept
Healthcare Shares

ResMed shares are in a two-month lull. Is this a chance to buy?

ResMed shares are still trading below the price targets of several brokers.

Read more »

A female stockbroker reviews share price performance in her office with the city shown in the background through her windows
Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »